Survey: insurtech investment
Waiting for the right moment
Everyone understands the importance of having the best technology, but this is just one of many competing priorities. Many captives believe there are more pressing concerns right now, as a Captive International survey found.
Few would dispute the benefits of investing in technology. In a perfect world, captives would buy the best systems available in the market across the whole business, streamlining claims, enhancing underwriting and beefing up risk management.
Unfortunately, in this real, less-than-perfect world the money available to invest is finite, and tough decisions have to be taken about where the available resources should be invested.
For many captives, the decision to invest in technology to enhance underwriting means not spending that money on improving claims processes. Investing in tech today makes it harder to justify investing again tomorrow, and there is always the possibility that better offerings will soon come to the market.
Many will not have the money to invest in technology at all, as they set aside what capital they have for other purposes, such as hiring new people or building up reserves. In short, there are always excuses to put off investing in technology.
More than 90 percent of respondents to a Captive International survey said they think captives have had other priorities in recent years that have prevented them making significant investments in technology.
Investing in technology is expensive, and while wise investments in this area are expected to deliver a return in the form of things such as improved efficiency or customer satisfaction, there is often a time lag before those returns are delivered. That can complicate the case for investing in technology, especially at times of economic uncertainty, making it easier to justify spending in areas where the return on the investment is likely to be seen more quickly.
Some captives may have benefited from technology investments made by their parent companies, noted one survey respondent, while a few have made their own investments in distributed ledger technology (blockchain). But these appear to be exceptions to the rule, with most captives evidently preferring to wait and see which technology systems will deliver them the biggest bang for their buck at a later date.
Figure 1: What impact has the COVID-19 pandemic had on captives’ willingness and ability to invest in new technology?
The majority of respondents did not see COVID-19 as having had much impact on captives’ thinking around technology investment (Figure 1). More than two-thirds argued it was not a priority even before the pandemic hit and is not a priority now.
Fourteen percent of respondents said technology investment is a priority for captives, but agreed that COVID-19 will not have done anything to fundamentally change their opinions.
However, 13 percent of respondents took a different view, arguing that COVID-19 might prove to be a catalyst for technology investment, perhaps offering better opportunities to manage the fallout of the crisis.
Indeed, 46 percent of the respondents to the survey said the area most in need of technology investment among captives was risk management, with the remaining responses split evenly between claims and compliance.
“Many captives are missing the boat when it comes to capitalising on the data available from owning an insurance company,” one respondent said.
“This data can be used to improve the risk management in all segments of the operation.”
“Better and more granular risk data is required,” added another, “but this will depend on parents’ willingness to invest.”
“Many captives are missing the boat when it comes to capitalising on the data available from owning an insurance company.”
Figure 2: How well positioned are captives to engage with insurtech, compared with commercial insurers?
“Sixty-two percent of respondents believe commercial carriers are better placed than captives to work with insurtechs.”
Sixty-two percent of respondents believe commercial carriers are better placed than captives to work with insurtechs, with the majority of the remainder taking the opposite view (Figure 2).
The case is easy to make for either opinion. On one hand, captives are smaller and nimbler, and do not have the same legacy technology issues around things such as compatibility that the commercial providers do. This might give them an advantage when working with insurtechs.
However, the majority bought into different logic, noting the significantly greater resources available to commercial carriers to make these kinds of investments. The size of the deals that could potentially be done with such large carriers will also make them more desirable partners for the insurtechs themselves.
“Commercial insurers have the resources to invest in insurtechs and have the greatest need for the benefits to remain competitive in today’s environment,” one respondent concluded.